Time To Sweat the Small Stuff
Guiding Expense Management
Post-Recession

by Kris Martin
Manager Profit Recovery Partners

At our Memorial Day BBQ this year my Uncle John, a successful stock trader, told the whole family: “Sell everything! The sky is falling!” Citing Europe, China, BP, and a dozen other causes, he postured that we are about to be taken on another ride. For the last year, pundits have been debating our economic recovery. On paper, the recession is over. With fractional growth numbers for the 4th quarter of 2009 and the 1st quarter of 2010, we can call it “official”, but is it a “V”, “U”, or “L” shaped recovery? A “V” shaped recovery seems out of the question at this point, and current events strongly point to an “L” or worse, so the question is: what’s next?

Over the last 18 months we have witnessed radical changes within law firms responding to the economic crisis. Both large and small firms have collapsed outright, not to mention financially driven mergers, executive restructures, and significant staff cuts through all ranks. Firms have also experienced pushback from their clients, who are putting established relationships through a bidding process, requests to restructure billing, and remove bill back line items. Inside these rapid fire and emotionally charged environments, administrators must deal with smaller staffs and even smaller budgets.

Regardless of what type of recovery we expect to see, or how long we expect it to take, this crisis is not a bump on the knee. It is a deep wound that will leave a scar on our institutions for decades. The world, and in turn our workplace, has changed, and it will never be the same.

Most firms have already reduced staff, asked vendors to revisit their costs, limited capital expenses, and shifted products and services to lower cost alternatives. Executives have often commented to me that these were some of the hardest decisions they’ve ever had to make. As firms rebuild inside a new economic reality, the ability to survive and thrive will be in part defined by scalable and sustainable expense management solutions that go beyond the recent short-term cost saving austerities. It is the legal administrator’s ability to design, implement and manage such programs that will be the foundation to these solutions.

There are three key components to an expense management solution.

Create tools to measure data. These tools do not need to be complex, but it is critical to measure the correct data for your firm. If we use contract and noncontract office supply items as an example, simply measuring the compliance of your contract items against billing is a first step. Your tool however, should track contract and non-contracted items, and analyze what is being purchased, who is not being compliant with policy, etc.

Understand the products and services you manage. While it takes years to be an expert in any one of the areas you manage, breaking down the key revenues and expenses of your vendors provides you tremendous insight and leverage. In record storage, for example, the cost of physical space is a major expense for the vendor. If non-critical storage, such as AP records, will never be delivered on a rush request, you may be able to manage a dual rate contract in which some materials are stored inside the city and others are less accessible.

Every change for the firm should trigger you to reevaluate or reintroduce every solution. Multiple cost reduction studies have shown that unmanaged savings dissipates over three years. While you should be meeting with your vendors to discuss contract and performance on a semi-annual basis, at each major change reevaluate the effectiveness of your programs as a whole.

The fact that I am suggesting that administrators must provide greater results with fewer people and less space has not escaped me. We have all been trained in an era in which Onken & Wass taught us to resolve the “monkey-on-the-back” with highly accountable employees. Today, all monkeys land on you! To manage this burden, leverage technology, request your vendor to provide reporting customized to your needs, and turn to outside consultants or outsourcing. That said, hold them to the same standards as you do your employees; what are the terms under which you can “fire” your technology/vendor/ consultant?

Over the next several years, as firm leadership discusses large scale strategic plans, build expense management solutions that are both scalable and sustainable. Measure your budget as a percentage of firm revenue today, as the firm rebuilds revenue, challenge yourself to decrease that percentage, rather than growing your budget proportionate to firm growth. Your solutions must be thoughtfully designed, which will take both time and laser focus. It’s time to sweat the small stuff.

Kris Martin, proud father of two, is married to Susy Martin and lives and works in Orange County, California. Kris is a Manager at Profit Recovery Partners and has been developing and implementing expense reduction and management solutions for the legal industry since 2002. To contact Kris, please email him directly at kris.martin@ prpllc.com or go to www.prpllc.com.